By David Pilley on February 3, 2011
.jpg.aspx?width=75&height=75) Maintaining a budget doesn’t sound like a fun thing to do, but then again bankruptcy certainly doesn’t, either. Having a personal budget— and sticking to it— is a way to maintain structure in an often chaotic world. Frivolous spending can put you thousands of dollars in debt and years worth in paying it back. If you don’t want to be in debt, create a budget.
Making a budget consists of three main ideas: keeping track of how you’re spending money now, setting long-term financial goals, and tracking your spending to make sure you stay within your own attributed guidelines. First, you need to know what you have and how you are spending it. You need to gather every paycheck for the month to get a general sense of how much you make. If you feel necessary, you can express this information visually by making a spreadsheet.
Once you know what you have, you can break down your specific expenditures. Create a list of categories in which you make payments. These categories should include home (mortgage or rent), automobile (including gasoline purchases), food (in home and out of home), debt repayment, savings, entertainment, and any other miscellaneous categories that may apply to you, such as medical/dental, child support, clothing, etc.
Having a comparison of the average American’s spending is a good way to determine how your budget will look. From the US Department of Labor report from 2009, the average income before taxes was $62,857; and the annual expense per household was $49,067. From here, we can also look at specific categories. Food at home was $3,753; food away from home was $2,619; house payments averaged $16,895; and so forth.
Now that you have a basis of comparison, you can adjust to create your own budget. Because not everyone makes exactly the average income (very few are average, in reality), you can break down some expenditures in percentages. The best expenditure to look at in a percentage would be house payments. A rule of thumb is to set aside at least 25% of your monthly income for your mortgage or rent. In 2009, the average American spent 1/3 of his/her expenditures on house payments, so anywhere in this range is acceptable. So, if your mortgage payment or rent is $1,000 a month, you need to be making at least $3,000 a month.
With some categories, an actual number may be better for assessment. If you look at the information for food spent at home (aka purchasing food at the grocery store), the average household spent $531 a month, with $312.75 going toward food in the home and $218.25 toward eating outside the home. If any category could be modified for a budget cut, it would be the food category. Try limiting yourself to $100 a week on all food purchases, and see if you can stick with that.
As you can see from the 2009 data, not everything people made was spent. The last part of a budget is preparing for the future, and if you can set aside about 10% of your monthly income toward a savings account, you may have the final piece in creating a budget you can afford. Everybody’s income is different. Everybody’s appetites and spending tendencies are also different, I understand. However, if you create a budget and follow some basic guidelines, you might not have to have “debt repayment” as a category in the near future.
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